10 Pros and Cons of Investing in an Established Franchise
If you’re familiar with the franchising concept but aren’t sure if it’s the right business move for you, this article should help create a clearer picture. See below for a complete rundown of the pros and cons of investing in an established franchise.
Starting a franchise is a smart investment decision if you have a desire to become a business owner but lack the experience and confidence. But for some individuals it might not be such a great alternative to starting their own business from scratch. If you’re on the fence about investing in an established franchise, it can be helpful to consider the pros and cons and take a balanced approach to your decision making.
1. Brand recognition
Customers are attracted to the quality and consistency associated with franchise brands. When you purchase an established franchise, you're buying into a name that consumers may already recognise and trust. If they do, they’ll visit your business knowing they’ll receive the same products and quality of customer experience they’ve previously enjoyed in other locations.
You will have to pay for the use of the brand name and its trademarks. However, the higher profitability you’re likely to achieve as a result of harnessing the brand’s power and influence should more than compensate for this expense. What’s more, the price you pay should reflect the prominence of the business. In other words, if you buy into a little-known franchise, your fees should be lower than those incurred by an internationally recognised one.
2. Ready-made customer base
As we’ve discussed, a major outcome of high brand awareness is an existing customer base. Established franchises can give you a queue of customers waiting for your doors to open. And it’s not just the big names that come with a loyal customer base. Many established franchises have built up a reputation in their industry, and this results in word-of-mouth recommendations.
If you decided to start an independent business rather than buy a franchise, you would have to build up your reputation from scratch. This takes a substantial amount of both time and money, as raising awareness of your new business and developing trust and credibility requires a lot of effort. If you become a franchisee, it’s unlikely you’ll need to raise this level of public awareness. Therefore, you’ll be able to focus your time and capital on other elements of your business. In turn, you’ll be able to develop the unit quicker, safe in the knowledge that you have a steady income stream thanks to your devoted customers.
3. Training and support
Well-structured franchise systems incorporate a range of different facilities that can be invaluable when you’re a new franchisee. Once you’ve signed on the dotted line, you’ll probably benefit from:
- Tried and tested operating systems
- Assistance with site selection
- Help with store designs and fit out
- Reduced equipment costs
- Initial and ongoing training
- Detailed operations manuals
- Proven marketing and advertising campaigns
- Support during your franchise launch
4. Don’t always need previous experience
Often, this strong training and support network means that you don’t even need experience as a business owner or in the industry. This is because everything you’ll need to know to set up and manage a successful business is included in the training programme. This is one factor that independent business owners certainly don’t benefit from.
Ultimately, franchising gives you the opportunity to leap into a sector you’re interested in without having to build up the experience first. Also, you’ll be able to rely on the ongoing support of the franchisor if you have any concerns once you’re up and running.
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5. Peer support
As well as the support you’ll receive from the franchisor, you’ll also be able to lean on other franchisees. As long as you’re not the first franchisee to enter the business, you’ll be joining a network of other franchisees who will be on hand to offer advice when needed.
The best franchises to own are those that encourage franchisees to meet up and network regularly. Some franchisors organise regular conventions and other social events that enable franchisees to share stories, ideas and concerns with their peer group.
6. National marketing campaigns
Investing in an established franchise means you can benefit from national marketing campaigns. Delivered the right way with the right message, marketing campaigns can be an extremely powerful tool and have the power to make or break any business.
Most franchisors expect franchisees to contribute to a consolidated marketing fund that finances promotional activity on a national level. This level of marketing would be difficult for a lone franchise unit or an independent business to achieve.
1. Must adhere to strict rules and regulations
With any franchise, you’ll have to give up a bit of your creative freedom when it comes to operating your business. The system that you’re expected to follow may be stricter in more established franchises than in newer ones with less developed systems. This is because, as a franchise gets bigger with hundreds, if not thousands, of outlets across the globe, the need for consistency becomes even more important. However, all franchisors will be interested in maintaining some level of consistency across the network.
The franchisor will have built up the business from scratch and will have a set way of operating. Franchisees must be able to enter the business, pick up their strategies and run with them. For example, you may have to use specified suppliers or incorporate a specific interior design theme. If you think you’ll find it difficult to follow a strict set of rules, franchising may not be the ideal business model for you.
2. Could become over-reliant on the system
Many of the big decisions are taken out of your hands when you become a franchisee, but you’re still responsible for operating your business on a day-to-day basis. No matter how big the brand is, you’ll always be accountable for the performance of your franchise.
However, it can be easy to become complacent when you invest in an established franchise, as the system is so well developed. You can’t just sit back and expect the money to roll in, no matter how long the franchise has been around. You’ll still need to invest time and money in local marketing activity, lead and motivate your staff, and provide exceptional service to your customers. Becoming over-dependent on the system will seriously affect your ability to become a successful and profitable franchisee.
3. Ongoing royalty fees
Sometimes, investing in a franchise can be more costly that starting from scratch; particularly with huge global brands like McDonald’s. You are, after all, getting all of the pros listed above in return for your investment. Just make sure that you are prepared to make this financial commitment and pay the ongoing fees.
>> Read more:
- Franchising 101: The Complete Guide to Franchise Costs in the UK
- Franchising 101: 6 Top Contributors of Franchise Failure
- Franchising 101: How to Buy a Franchise Business in 10 Steps
- Franchising 101: The Official Franchise Start Up Checklist (Part 1)
- Franchising 101: Top 5 Qualities of a Franchisee
- Franchising 101: 6 Tips for Building Customer Loyalty Through Marketing
- Franchising 101: The Pros and Cons of Franchising Your Business
4. Your reputation can be tarnished by another franchise location
No matter how fantastically you run your own franchise unit, the fact is you’re still tied to the national franchise brand. So, if another franchise is getting bad publicity, this could mean that your business suffers. This is why it’s so important to carry out thorough due diligence before you sign on the dotted line, as if you invest in a reputable franchise with a good track record the likelihood of this happening is slimmer.
Investing in an established franchise – the round up
Franchising offers plenty of advantages to entrepreneurs who make the most of the model. Of course, you’ll pay for the benefits you receive, from the existing brand awareness and national marketing activity to comprehensive training programmes when you first join the business. Ultimately, however, you should be able to make a healthy return on your investment, making the initial and ongoing franchise fees worth every penny. If you’ve found this helpful, you might also be interested in reading whether investing in a franchise or starting your own business is the right decision for you.
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Becky Martin, Point Franchise ©
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